Cryptocurrency, also called crypto, is a form of currency that exists digitally and uses cryptography to secure transactions. They also don’t have regulatory authority and instead use a decentralized system to register transactions and issue new units.
Cryptocurrency is a digital payment system that doesn’t require bank verification of transactions. It’s a system that allows people to send and receive money anywhere. It got its name as it uses encryption to verify transactions. Encryptions store your information safely and securely.
There is advanced coding involved to store and transmit cryptocurrency data between wallets and to public ledgers. Instead of carrying physical cash, crypto payments have digital footprints and exist on an online database.
The transactions are recorded in a public ledger when you initiate a crypto fund transfer. Investors are interested in crypto to trade for profit, with speculators often driving the price sky-high.
Cryptocurrencies run on blockchain technology. Blockchain is a digital record or ledger of transactions distributed among computer networks. Anyone wishing to create cryptocurrency can “mine” it. This means using computer power to solve complex math issues that generate coins.
Investors can buy cryptocurrencies from brokers and store them in wallets. When you own cryptocurrency, you own a key that enables you to move a record between people without a trusted third party.
Cryptocurrency and blockchain technology are relatively new financially and are continually evolving. It could eventually lead to trading bonds, stocks, and other financial assets using the technology.
Once you buy cryptocurrency, you need to store it safely to protect it from hacks and theft. It is usually stored in wallets or online software to store the private keys to your cryptocurrencies securely. Some crypto exchanges offer wallet services, simplifying your crypto storage.
When referring to wallet storage, two terms are predominantly used:
Cryptocurrencies have blockchain technology. Blockchain is how “transactions are recorded into “blocks” and time-stamped.” It’s a complex technical process that results in a ledger for your cryptocurrency transactions. It is also hard to tamper with. Transactions need two-factor authentication.
Though it has encryptions and securities, cryptocurrencies are not 100% un-hackable. Cryptocurrency start-ups have suffered heavily due to high-dollar hacks. Unlike government-backed money, supply and demand drive the entire value of cryptocurrencies. This can cause giant swings affecting your profits and losses significantly.
The cryptocurrency market also has far fewer regulations than traditional financial markets – stocks, bonds, and mutual funds.
All investments carry a certain amount of risk. However, some experts believe cryptocurrencies are riskier than regular stocks. Here are a few tips to help you make an informed decision if you choose to invest:
Know how cryptocurrency exchanges work before you decide to invest. There are approximately over 500 exchanges to pick from. Research thoroughly, read reviews, and talk to experienced investors before investment.
You need to store the cryptocurrency you buy. You can either store it on an exchange or a digital wallet. While there are different wallets, each has benefits, security, and technical requirements. Explore and examine your options before you invest.
Regardless of what you choose to invest in, diversification is critical. Don’t put all your money in one fund with no back up. There are various options, and it’s better to diversify your funds.
The cryptocurrency market is highly volatile so prepare yourself for instabilities. If you can’t handle uncertainties, crypto might not be a good choice for you. Despite being all the rage, crypto is a relatively new currency and is very speculative.
Investing in a new fund comes with challenges, and the only way to overcome them is to prepare. If you wish to participate, research and start with a conservative approach. The safest way to invest is to use a comprehensive antivirus.
There are mixed opinions on whether or not one should invest in cryptocurrency. Since crypto is a highly volatile and speculative investment, some advisors don’t recommend investing in crypto. For example, Bitcoin quadrupled in 2020, with an EOY value of over $28,900.
However, by April 2021, the price doubled from the starting price and lost all the profits by July. It has been going up and down since November 2021, proving the volatile nature of cryptocurrencies. This is why Peter Palion, a certified financial planner (CFP) in East Norwich, N.Y., thinks it’s safer to invest in a fund that the government backs like the US$.
Having U.S. Dollar reserves means you can pay your mortgage and bills. Compared to Bitcoin, the U.S. Index is pretty stable. Peter Palion says that “Something that drops by 50% is not suitable for anything but speculation.” However, if you wish to invest in cryptocurrency, make sure your portfolio is large enough to handle the volatility.
Investing in a new market shouldn’t derail your long-term plan should the investment make severe losses. If you’re wondering how much to invest, it’ll depend on how much you currently have and what you have at stake – from a loss perspective.